Development Co-operation Report

The annual report of the Chairman of the OECD Development Assistance Committee (DAC). It provides detailed statistics on and analysis of each member’s foreign aid programmes (offical development assistance - ODA) as well as an overview of trends and issues currently being discussed in the development community.

The Development Co-operation Report, issued by the OECD Development Assistance Committee (DAC), is the key annual reference for statistics and analysis on the latest trends in international aid.

With only five years left to achieve the Millennium Development Goals (MDGs), much remains to be done. The task has become even more challenging given the economic, food and climate change crises of recent years. This report describes how the DAC has responded swiftly, putting the development dimension of these crises firmly on the political agenda and keeping the development community focused on providing more aid, and delivering it more effectively.

In times of economic uncertainty, it is particularly important for aid to provide value for money, and to ensure that it is not misused. The development community has responded by sharpening its focus on corruption; targeting and communicating clear development impacts; working increasingly through developing countries’ own systems to build capacity; and intensifying efforts in the poorest 30% of developing countries – a critical step toward achieving the MDGs. The report also describes how the DAC member countries intend to make their aid truly effective in the decades to come, by ensuring that climate change is addressed in each of their policy choices and by developing a broader, more inclusive approach.

This report is also published on line to improve the accessibility of key OECD DAC work and to respond to the needs of the aid community by giving prompt and easy access to its analyses and statistics.

The world has seen unprecedented welfare gains in the last 50 years. The OECD’s Development Assistance Committee (DAC), the world’s principal donor forum, has contributed to these gains. It was a major force behind the Millennium Development Goals (MDGs), which continue to guide the development community. It enshrined the ownership principle as a central tenet of donor policy, allowing developing countries to take the lead in defining and implementing their own development strategies. It has successfully encouraged donor countries to provide more, and more effective aid. Thanks to these efforts, official development assistance reached a record level of USD 120.5 billion in 2008.

The combined acute effects of the food, energy and economic crises are a major challenge to the development community, raising searching questions about the real impacts of development, how to demonstrate them, what really underlies them, and our ability to control and account for them.

What do the global economic downturn and the commitments most donors have made to increase both the volume and effectiveness of aid mean, in practice, for managing aid? This chapter summarises the practical implications, focusing on three main aspects: dealing with major changes (either increases or decreases) in aid volumes; improving accountability; and building more effective organisations. It shares some of the practical steps taken in 2009 by individual DAC members to rise to these challenges.

For aid to be effective, donors need to respect partner country ownership over their own development policies and practices. This means, among other things, using a country’s own administrative systems to deliver aid. Decades of development experience show that bypassing country systems and policies weakens a country’s ability to determine its own future.

Nonetheless, many donors are hesitant to use this approach because of fear of financial misuse and lack of attribution for development impacts. This chapter highlights the long-term advantages versus the risks of using country systems, and outlines donor and partner country efforts to both strengthen and use these systems.

Many developing countries consider trade to be a key component of their growth and poverty reduction strategies. However, trade flows are estimated to have declined by around 10% in 2009 as a consequence of the economic crisis, undermining confidence in trade’s role as an engine for growth and poverty reduction. Despite this, turning away from trade is not the answer. On the contrary, this chapter argues that it is all the more important to ensure that the right conditions are in place for integrating developing countries into regional and global markets.

While the developed world is working out the best mitigation strategies for reducing greenhouse gas emissions, the developing world needs help to adapt to the impacts of an already changing climate. "Development as usual" will not be adequate to climate-proof vulnerable populations and countries. Adaptation needs to be built into planning at all levels, from projects to national and sectoral strategies. This chapter outlines the DAC members’ role in this process and the challenges ahead.

Achieving the Millennium Development Goals will depend on how successful we are at helping the world’s most fragile states. This group of 48 countries represents the poorest of the poor, often because of violent conflict and poor governance.

In 2007, the OECD endorsed ten Principles for Good International Engagement in Fragile States and Situations. This chapter reports on progress and lessons learned from implementing these principles in Afghanistan, Central African Republic, Democratic Republic of Congo, Haiti, Sierra Leone and Timor-Leste. The views presented here come directly from the countries themselves and have much to offer to those striving to engage more effectively in such environments.

The prevailing world economic crisis will only increase the level of scrutiny over the use of public funds. This chapter explores how the development community is making increased efforts to tackle corruption, whilst maintaining its commitment to the aid effectiveness agenda. The chapter draws on knowledge and lessons from the field, and research by the Development Assistance Committee’s Network on Governance to show how donors are increasingly working together in partner countries to understand and deal with corruption. Donor spending on a variety of initiatives aimed at strengthening governance is steadily increasing. In addition, international agreements like the UN Convention against Corruption (UNCAC) are helping to support coherent donor approaches. The chapter concludes by listing some further actions needed in today’s crisis environment to respond better to public concerns about corruption in the overall delivery of international aid.

This chapter outlines key progress made in 2009 by the 23 members of the OECD’s Development Assistance Committee (DAC) towards meeting their aid effectiveness commitments. This first section summarises the performance of DAC donors in 2008 and explores whether they are on track to meet their aid commitments. The second section provides individual notes on each of the DAC’s member countries, analysing what steps they have been taking to fulfil their aid effectiveness commitments and the challenges still to be overcome. The third section reviews the main achievements and challenges of other OECD donors, while the fourth section describes the role of non-OECD providers of development assistance.

A 2009 policy statement on Australia’s international development assistance recognises the importance of aid effectiveness in making genuine improvements to people’s lives. In August 2009, participants of the Pacific Island Forum, chaired by Australia, endorsed the Cairns Compact on Strengthening Development Coordination in the Pacific. The compact aims to accelerate progress on the Millennium Development Goals by improving co-ordination among all development partners in the Pacific. Australia has now signed up to eight Pacific Partnerships for Development to increase mutual accountability for results and promote partner-led development. Where government systems are strong and accountability processes are in place, Australia, in collaboration with other donors, has made good progress in aligning and harmonising its programmes with partner countries’ development objectives. For example, in Viet Nam in 2009 Australia channelled around 50% of its bilateral aid through programme-based approaches (using Viet Nam’s own management systems). The Australian Agency for International Development is developing an Operational Policy and Management Framework for an effective and scaled-up aid programme in line with the Accra Agenda for Action (AAA).

Austrian development co-operation (ADC) has been challenged by the AAA and the DAC 2009 peer review (Box 8.2) to set the right priorities for its Aid Effectiveness Action Plan up to 2011 and beyond. This forthcoming action plan will adapt the mix of aid instruments to capacities in partner countries, make better use of local systems and encourage more joint approaches with other donors. For example, besides participating in Uganda’s Joint Assistance Strategy, ADC successfully increased the use of country systems and contributed to their strengthening in that country. Budget support is likely to become a preferred financing instrument for Austria in the long run so long as conditions in partner countries allow. ADC will concentrate on its comparative advantage as a small donor. Austria promotes country ownership: one of the guiding principles of its programmable aid.

Belgium is to make the assessment of country systems compulsory (as recommended by a country-level review of the programming process for indicative co-operation programmes – ICPs), and country systems will be the preferred modus operandi. If country systems fail to meet required standards, Belgium will take measures to improve them. It is developing a manual to guide this new focus on country systems. Up to 50% of allocations can now be channelled through budget support; general budget support is to be provided via the EC or World Bank. Cross-cutting issues will be integrated into priority sectors at all stages of the ICP cycle.

Canada’s aid effectiveness agenda provides the basis for Canada to fulfill key commitments under the Paris Declaration and the Accra Agenda for Action. It is aimed at increasing i) the focus, with bilateral programming concentrating on 20 countries and on five thematic priorities (increasing food security, stimulating sustainable economic growth, securing the future of children and youth, promoting democracy and security and stability). The Canadian International Development Agency (CIDA) is focusing on the first three of these; ii) efficiency (for example, Canada is untying 100% of its aid, effective since April 2008 for all food aid and by 2013 for the remainder); and iii) accountability (with, for example, CIDA performance measurement frameworks, staff performance contracts and aid effectiveness as a guiding principle in evaluating proposals). Canada will also continue to pursue efforts with its multilateral, private sector and civil society partners to enhance aid effectiveness.

Denmark is currently revising its development co-operation policy to bring it in line with the principles of the Paris Declaration and the Accra Agenda for Action (AAA). It is also working to improve awareness and knowledge of Danish development co-operation. Denmark has been ensuring that its aid management framework and technical guidelines for development assistance comply fully with the AAA. Denmark has a highly decentralised aid administration which helps foster partner country ownership and support partnerships at the country level. To maximise the use of country systems, Denmark has made sector budget support the main channel for its development assistance.

The European Commission (EC) has now established an overall strategy for implementing the Accra Agenda for Action focusing on use of country systems, division of labour, untying aid, conditionality, predictability and transparency. Two aid effectiveness networks have been established to promote the Accra agenda within headquarters and in EC delegations in 46 countries. The delegations have been provided with guidance on implementing aid effectiveness, including using country systems via aid modalities other than budget support. The EC has raised awareness of aid effectiveness across its services and is developing training in aid effectiveness.

In 2009 Finland completed an analysis of its section of the DAC 2008 Survey on Monitoring the Paris Declaration (OECD, 2008a). This is currently being reviewed by the Foreign Ministry’s inter-departmental working group on aid effectiveness, who will make recommendations for implementing more effective and co-ordinated aid. Finland has established new workshops to allow country teams and aid effectiveness advisors to seek practical solutions for applying the Paris and Accra principles to projects and programmes. The goal is to strengthen the link between policy and aid effectiveness implementation.

On 5 June 2009, the Inter-ministerial Committee on International Co-operation and Development (CICID) issued a series of recommendations on implementing French Co-operation’s international aid effectiveness commitments. For example, it will improve the sectoral and geographical concentration of its aid; the latter by distinguishing between four groups of countries on the basis of types of partnerships and methods of intervention. It will also pursue a better division of labour through delegated co-operation arrangements with France’s EU partners.

Germany’s reform agenda, originally adopted by the Federal Ministry for Economic Co-operation and Development (BMZ) in 2005, was updated in March 2009 by an action plan to implement the Accra Agenda for Action. This will ensure that German co-operation makes more systematic use of partner country structures and procedures in areas such as public financial management, procurement, and monitoring and evaluation. Germany will ease partner countries’ policy planning by delivering timely information on the scope and form of its development co-operation. Germany is one of the signatories of the International Aid Transparency Initiative launched at the Accra High Level Forum, and emphasises national and mutual accountability mechanisms.

Greece is taking steps in all aspects of its policy to implement the Accra Agenda for Action. Its 100% grant-based policy allows no conditionality to be attached to disbursements, ensures anticorruption measures are effective, and emphasises that all programmes must be consistent with the internationally-agreed commitments on gender equality, respect for human rights and environmental sustainability. Furthermore, in order to promote country ownership, all programmes – including capacity development programmes – are demand-driven. Greece has extended coverage of the 2001 DAC Recommendations on Untying Aid to non LDC HIPCs (OECD, 2008b) and is considering increasing the coverage further.

The recently approved Management Review of Irish Aid includes recommendations for strengthening institutional capacity for effective delivery, accountability and oversight. This will help Irish Aid implement the Accra Agenda for Action (AAA). Ireland’s plan for implementing the AAA includes concrete actions for every section of the organisation. A new training strategy focuses on the skills needed to operate effectively in the new aid environment. Ireland’s results-based country strategy paper guidelines and mid-term review methodology are fully aligned with the effectiveness commitments. Funding appraisals now require partners to plan, implement and review their interventions in line with the AAA. Ireland has signed up to the International Aid Transparency Initiative and is working with other donors, partner countries and civil society to improve the quality and timeliness of information on development assistance.

Italy is strongly committed to implementing the Paris Declaration and the Accra Agenda for Action. It has approved an Aid Effectiveness Action Plan (AEAP) following consultation with CSOs. This contains 12 priority actions, including identifying priority countries, simplifying procedures, untying aid and strengthening communication and evaluation capacities. Working groups have been established to implement the plan and will monitor progress at headquarters and at country level using specific markers.

As a nucleus for policy planning and overall policy co-ordination of Japan’s ODA, the Ministry of Foreign Affairs was restructured in July 2009 in order to further strengthen its policy planning function and country-based approach. The establishment of a new Japan International Cooperation Agency (JICA) in 2008 allows effective and swift management of co-operation programmes as a whole. In April 2009, the target disbursements for each region were announced for the first time and rolling plans have been published for each country, starting in summer 2009.

In 2009, Luxembourg prepared work plans for 2010 for each of its decentralised regional offices following a participatory effort involving Luxembourg’s Co-operation and Lux-Development. Together they continue to focus on efforts to achieve the Paris and Accra objectives (such as reducing parallel implementation units, and using public financial management and procurement systems). They also focus on improving co-ordination and complementarity between the Foreign Affairs Ministry’s decentralised offices and Lux-Development and provide for other measures adapted to the context of the different missions and to the needs of partner countries. The Chamber of Deputies and the Interministerial Committee on Development Co-operation are also regularly informed of progress towards aid effectiveness and development policy coherence.

The Netherlands is committed to meeting all its Paris and Accra promises, especially using country systems, predictability, (mutual) accountability and transparency, results orientation, division of labour and aid effectiveness in fragile situations. The Netherlands’ Action Plan for Paris and Accra (NAPA) shifts the country into a higher gear: a major component involves a stocktaking and priority-setting exercise with embassies in 30 partner countries. This will have an impact on work at country level and will inform headquarters of the most immediate and effective actions to be taken based on concrete experience from the field.

The New Zealand Agency for International Development (NZAID) has a new mandate and policy framework (as of April 2009). These reinforce its commitment to providing effective aid by advancing both the Paris Declaration and the Accra Agenda for Action. A special focus is on improving aid effectiveness in the Pacific region. New Zealand has endorsed the Cairns Compact on Strengthening Development Coordination in the Pacific, whose key objective is to co-ordinate development better to make real progress against the MDGs.

Norway implements the aid effectiveness agenda through dialogue with partner countries and, increasingly, interaction with multilateral partners and global funds. The main actors in Norway’s development assistance system – the Ministry of Foreign Affairs (MFA), the Norwegian Agency for Development Co-operation (NORAD) and the embassies in Norway’s partner countries – are committed to actively exploring ways of meeting the AAA commitments. Institutional reforms initiated in 2004 have now been consolidated, and the embassies play a particularly important role in implementing effective aid. The MFA recently distributed a strategy note calling for strengthened follow up on the AAA by all actors.

Portugal is making greater use of partner countries’ public financial management systems, including in national procurement procedures. It avoids parallel implementation units. Since some of Portugal’s partners are fragile states, where certain conditions cannot be met, Portugal channels aid towards institutional capacity building. Portuguese co-operation programmes with individual partner governments run over a three to four-year period so they can be aligned with partner governments’ poverty reduction strategies, or similar frameworks. Portugal will plan these programmes in advance to allow partner governments to integrate aid flows into their budget cycle. Work is underway to make these plans as exhaustive as possible, which means capturing all aid flows.

The Third Spanish Cooperation Master Plan for 2009-12 emphasises the aid effectiveness principles. The Spanish International Cooperation Law is currently being revised from an aid effectiveness perspective to facilitate the implementation of the AAA commitments. The reform of the Spanish Implementing Agency (AECID) will enable it to deliver more effective aid. Planning and programming methods are being revised and updated and Spain’s approach to development results with its partner countries is being redefined.

The Swedish International Development Co-operation Agency (Sida), and the Ministry of Foreign Affairs (MFA) launched a joint action plan for aid effectiveness in July 2009. The plan encompasses seven objectives for effective Swedish development co-operation, with special attention given to the use of country and organisational systems, programme-based approaches and results orientation. The action plan also specifies how Sweden can strengthen co-operation on aid effectiveness in global fora as well as in relation to multilateral organisations. Baseline data will be collected for Sweden’s 33 priority countries and specific objectives on aid effectiveness will be set. During this process, the main obstacles for moving forward and country-specific measures will be identified in order to accelerate progress. The action plan will be followed up in semestral meetings between Sida and the MFA.

Switzerland defined its priorities for implementing the AAA commitments in a policy statement adopted in 2009. They include democratic ownership, the use of country systems, aid predictability and programme-based approaches. Predictability and transparency of aid flows will be enhanced by improving processes and instruments. To this effect, Switzerland has joined the International Aid Transparency Initiative. Switzerland has launched a country-by-country stocktaking exercise of its use of country systems. This will help to systematise their use where they are sufficiently robust. To enhance programme-based approaches, Switzerland plans to review its experience and provide policy guidance and training to country offices, including on their definition, objectives and conditions. Switzerland intends to further devolve management responsibilities to country offices to increase country-specific implementation of the AAA.

The UK Department for International Development (DFID) is committed to meeting the Accra Agenda for Action objectives and has already met 7 of the 10 relevant Paris Declaration targets. DFID’s 2009 White Paper underscores the United Kingdom’s political commitment to aid effectiveness. DFID has a duty towards the UK Parliament and the public more broadly to ensure public funds are spent in the most effective way. DFID recently published an action plan to ensure its Paris and Accra commitments are met.

2009 has seen accelerated positive change in the United States on aid and development effectiveness. The Obama Administration has taken steps to improve the coherence of US policy and practice in development assistance by forming the International Development and Humanitarian Assistance Inter-Agency Policy Committee (IPC) and directing the National Security Council and Council of Economic Advisors to propose a government-wide development policy and strategy. The Department of State has stated a preference for partnerships and multilateral approaches in development and diplomacy.

Mid-term reviews have been conducted at the request of DAC members on a voluntary basis since 2003. They are being piloted until the end of 2009, at which point the DAC will decide whether they should become a more regular process. As part of this pilot, Canada, Denmark, Finland, the Netherlands and Spain volunteered to have a mid-term review in 2009 (Box 8.7). These reviews proved useful for tracking changes, results and impact; for bringing momentum to members’ efforts to implement the recommendations; and for sharing experiences with other DAC members more often than every four to five years.

While the DAC brings together the major OECD aid donors, countries beyond the OECD’s membership have long played an important role in development co-operation. In many cases, their recent development knowledge and experience as recipients of ODA have allowed them to develop unique and effective relationships with partner countries.

We, Ministers of developed and developing countries responsible for promoting development and Heads of multilateral and bilateral development institutions, meeting in Paris on 2 March 2005, resolve to take far-reaching and monitorable actions to reform the ways we deliver and manage aid as we look ahead to the UN five-year review of the Millennium Declaration and the Millennium Development Goals (MDGs) later this year. As in Monterrey, we recognise that while the volumes of aid and other development resources must increase to achieve these goals, aid effectiveness must increase significantly as well to support partner country efforts to strengthen governance and improve development performance. This will be all the more important if existing and new bilateral and multilateral initiatives lead to significant further increases in aid.

This report incorporates data submitted up to 20 November 2009. All data in this publication refer to calendar years, unless otherwise stated. The data presented in this report reflect the DAC List as it was in 2008 (for a complete list of countries, please refer to the end of this volume).

The Query Wizard for International Development Statistics (QWIDS) was developed in 2007 by the Development Assistance Committee (DAC) to improve the accessibility and user-friendliness of its databases.* QWIDS provides easy access to statistics on aid flows. It is an intuitive system, designed to enable a novice user to easily navigate the system, search for and extract data.